IMPLICATIONS OF 13th & 14th FINANCE

COMMISSION ON THE INDIAN ECONOMY

ECONOMICS SYNOPSIS

NAME - HARDIK NAIN

ENROLLMENT ID - 2016 021

SEMESTER - IVth

COURSE - B.A LL.B

SUBMITTED TO – DR. RAHUL SAPKAL

DATE – 25/01/2018 TIME –

INTRODUCTION-

“Indian federalism is a cooperative federalism. In a Democratic Constitution without the

finance commission, the distribution of revenues would have degenerated into something like
open warfare”.

-Granville Austin

We all are part of Republic of India which is the largest ever democracy till now and it will
be insane if all power goes in one hand and we all know “absolute power corrupts
absolutely”. This democracy again taken a step towards the decentralization of power in the
form of Seventy-third Amendment, this step poses challenges and offers opportunities.1 India
is governed by three layers of governance namely Central, State and Local Governments.
Different powers and subject matter is divided in these governments, it is done in order to
maintain the stability. The functions of the central government are those required to maintain
macroeconomic stability, international trade and relations, However, Constitution recognises
that its assignment of tax powers and expenditure functions to the central government would
create imbalances between expenditure needs and abilities to raise revenue. The imbalances
could be both vertical, i.e. among different levels of government, and horizontal, i.e. among
different states2, which led to formation of Finance Commission which is enshrined in Article
280 of the Constitution of India as a quasi- judicial body. It is constituted by the president of
India every fifth year. It makes the following recommendations about the following to the
President of India:

 The distribution of the net proceeds of taxes between the centre and the states and the
allocation between the states of the respective shares of such proceeds
 The principles that should govern the grants in aid to the states by the centre
 The measures needed to augment the consolidated fund of states to supplement the
resources of the local governments in the states on the basis of the recommendations made by
the State Finance Commissions.
 Any other method referred to it by the President in the interests of the sound finance.

1
"All you need to know about finance commission". 2017. The hindu.
Http://www.thehindu.com/business/economy/all-you-need-to-know-on-finance-commission/article6928860.ece
2
Nithin K and Rathin Roy , Finance Commission of India’s Assessments: A Political Economy Contention
between Expectations and Outcomes , September 2014
Although these recommendations made by finance commission are only advisory in nature
and hence, are not binding on the government.

RESEARCH QUESTION

1. Impact of 13th and 14th Finance Commission on the ground economy of India.
2. Role of state finance commission in making financial policy.

METHODOLOGY

The researcher will be undergoing intensive research based on literature availability through
the books, newspaper, journal and magazine articles and online source. A data analysis
framework will be analysing the quantitative and qualitative data gathered thus analysing the
impact of 13th and 14th Finance Commission.

CHAPTERISATION

1. INTRODUCTION
2. 13th FINANCE COMMISSION- AN OVERVIEW
3. 14th FINANCE COMMISSION – INSIGHT
4. IMPACT OF FINANCIAL COMMISSION ON THE ANNUAL BUDGET
5. CHANGE IN CENTRE AND STATE RELATIONSHIP
6. CONCLUSION

LITERATURE REVIEW

Government is required to maintain macroeconomic stability, international trade and relations

in the country, in this regard Financial Commission Recommendations plays an important
role as it directs certain steps to be taken on the basis of collaborative research on almost all
the economic sectors of the country. It includes various criteria used for allocating funds, its
outcome. Also its impact on various sectors of the country, such as changes in policy making
of the government. Finance Commission saw a significant change in the relationship of centre
and state in recent time as it included a major share of the tax to be allocated to the states, as
it can be studied under following divisions

(a) Legislative Relations-

(b) Administrative relations

(c) Financial Relations

It surely has an impact on the annual budget presented by the government as it provides the
recommendations based on a detailed study which acts as directing the government to
allocate the specific amount as budget.

BIBLIOGRAPHY

WEB SOURCES

 http://finmin.nic.in/
 http://www.nipfp.org.in
 http://www.prsindia.org/uploads/media/13financecommissionfullreport
 http://www.downtoearth.org.in/test/news/central-concerns-52904
 http://www.accountabilityindia.in/
These sources allowed the researcher to study different perspective of scholars on the
recommendations on 13th and 14th Finance Commission, and also the impact of these
recommendations on the annual budget making process which is one of the main area of
focus in this research.

REPORTS

 13th Finance Commission Report

 14th Finance Commission Report
These reports helped the researcher to study from the actual report giving an indepth
knowledge about the Recommendations thus allowing the researcher to formulate the area of
study of this paper.
ARTICLES

 Nimai Das. "Federal Fisacl transfers on health: Implications of fourteenth Finance

Commission Recommendations at Subnational level." Public Health Foundation of India,
December 15, 2016.
 Pinaki Chakraborty. "Deficit Fundamentalism vs Fiscal Federalism: Implications of
13th Finance Commission’s Recommendations." National Institute of Public Finance and
Policy, January 2011.
 Nithin K and Rathin Roy. "Finance Commission of India’s Assessments: A Political
Economy Contention between Expectations and Outcomes." National Institute of Public
Finance and Policy, September 2014.

 Finance.Commission,India:“.2017.Fincomindia.Nic.In.
http://fincomindia.nic.in/ShowContentOne.aspx?id=16&Section=1.

 "All You Need to Know About Finance Commission". 2017. The Hindu.
http://www.thehindu.com/business/Economy/all-you-need-to-know-on-finance-
commission/article6928860.ece.

 "Appoint State Finance Commission, Urge Activists". 2017. The Hindu.

http://www.thehindu.com/news/cities/Hyderabad/Appoint-State-Finance-Commission-urge-

 Edit, ET. 2017. "Finance Commission’S Recommendations To Strengthen Fiscal

Autonomy Of States". Economic Times Blog. http://blogs.economictimes.indiatimes.com/et-
editorials/finance-commissions-recommendations-to-strengthen-fiscal-autonomy-of-states/.
 "EGranthalayaWebOPAC...".2017.Moflibraries.Gov.In.http://moflibraries.gov.in/Welco
me.aspx.

 "Recommendations Of The 14Th Finance Commission". 2017. The Hindu.

http://www.thehindu.com/business/recommendations-of-the-14th-finance-
commission/article6929255.ece.

 "State Finance Commissions - Arthapedia". 2017. Arthapedia.In.

http://arthapedia.in/index.php?title=State_Finance_Commissions.
 "The Other Debt Issue: On The States' Finances". 2017. The Hindu.
http://www.thehindu.com/opinion/editorial/the-other-debt-issue/article18475136.ece.

These articles helped in analysing the following questions What is a Finance Commission? What
else is its job? What kind of work a Finance Commission has to do? Who is the head of the latest
i.e. 14th Finance Commission? Who are the other members of the Commission? Are the
recommendations of the 14th Finance Commission unanimous? What is the key recommendation
of the 14th Finance Commission? What does it mean to States? What will the impact of this
recommendation if accepted by the Centre? What is the implication of this recommendation? This
provided the researcher with basic knowledge about the Financial Commission and issues related
to it. It also enables the researcher to gain knowledge about the changing centre and state relation
as now state play an active part in centre governments working.